The British pound has fallen back from its best levels against the euro and dollar since May - but where will the pound trade following the release of results on Thursday night?

The pound to euro exchange rate is today at 1.2990

The euro to pound exchange rate is today at 0.7699

The pound to dollar exchange rate is today at 1.4645

We get the sense that the pound has witnessed its best levels ahead of the referendum outcome, which is likely to be made known at around 4AM on Friday the 24th.

However, analysts believe that the release of privately conducted exit polls at around 10PM on Thursday evening could really set sterling in motion, so with big moves being promised, it is likely GBP will consolidate over coming hours.

While Intesa Sanpaolo’s Jamaleh doesn’t see such a bounce, he is however looking for a more ‘moderate’ decline towards the low end of the 1.250-1.1765 range.

“Against a background of widespread pre-referendum market tension, the single currency’s negative reactivity is explained by the risk of an increase of independentist forces within the euro area in case of Brexit, and by the difficulty of estimating the potential negative fallout on the euro area economy,” says Jamaleh, explaining why the euro could suffer.

While the analysts mentioned don’t see the lows witnessed following the 2008 financial crisis, there are others who see the EUR/GBP potentially moving to parity over by the time 2017 begins.

Under a range of outcomes extrapolated by UBS, the risk is that a vote to leave the EU, or the expectation thereof, could force the UK current account deficit into quick rebalancing mode.

“The currency could bear the brunt of the adjustment if markets focus even more on the imbalance. A range of outcomes is possible, but one risk is that GBP could then depreciate by a cumulative 30% on a trade-weighted basis,” says a note from UBS on the matter.

Bremain Targets for the British Pound

If the “Remain” campaign prevails, the pound’s immediate reaction should be to make further gains.

Jamaleh is targeting the GBP/USD exchange rate towards 1.50; this number is certainly the most common forecast given by analysts.

These are the exchange rates being insured against by thousands of traders.

Implied volatility essentially betrays a market that is unsure of where exactly the pound will trade at a given time in the future - the higher the implied volatility the greater the range within which the pound is forecast to trade within.

“Readings from the option market prices a 72% chance of GBP/USD trading anywhere between 1.32 and 1.51 on the afternoon of June 24th,” says Chris Turner, analyst with ING in London.

Analyst Ipek Ozkardeskaya at London Capital Group has read the same markets a little differently and says the pound could be biased even higher on a Remain vote:

“Option markets have also been shaky this morning, with a sharp decline in put options maturing in three months versus call options.

“According to the pricing in the spot pound market, a Brexit event could drag the GBPUSD down to 1.30. It is certainly a risk worth being hedged. On the flip side, buyers are ready to depart for a relief rally if Britain decides to remain in the EU. We do not rule out the possibility of a post-referendum bounce to 1.50/1.55 area.”

Longer-Term Gains Forecast on Remain Win

Looking beyond the referendum, and based on an assumption Remain will win, there is a definite sense that sterling is undervalued at current levels and should recovery ground and head back to fair value.

This is justified if we consider the UK economy has performed beyond expectation when the potential pitfalls of the EU referendum are considered.

This month we have seen wages beat expectations, while official manufacturing data shows the weaker pound is starting to have a positive impact on manufacturing.

In essence, the UK economy is one that is inviting an interest rate rise at the Bank of England.

There is a sense that the Bank will oblige and deliver such a move once the referendum has passed.

If this is the case, then expect sterling to trade with an upside bias for the remaining months of 2016.

“Should Remain come out on top, the prospect would stay in place of a BoE rate hike cycle starting around the beginning of next year, with resulting expectations for an appreciation of sterling both against the dollar,” says Intesa Sanpaolo’s Jamaleh.

Intesa are forecasting GBP/USD towards 1.50-1.55 in the run up to the first rate rise.

Consensus forecasts are less optimistic though with polls showing most analysts are forecasting GBP/USD at 1.44 by the turn of the year.

The pound to euro exchange rate is meanwhile seen towards the 1.33-1.35 range by Intesa.

A surprising U.S. employment report that showed the U.S. economy actually added jobs over the course of May and news that the EU and UK remain committed to further trade negotiations served up a dose of optimism for Pound Sterling bulls to latch onto ahead of the weekend.

The British Pound is being tipped to retain a subdued tone ahead of the weekend, amidst reports that the ongoing final round of EU-UK trade negotiations will see both sides declare they remain far apart on key issues after talks close later on Friday.

The British Pound leapt 0.85% against the Euro and a host of other major currencies over the course of the past 24 hours, which makes for the largest daily gain since April 02 and potentially sets the UK currency up for further gains in what could prove to be a volatile week for the currency owing to another round of trade negotiations between the EU and UK.

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The news and information contained on this site is by no means investment advice. We intend to merely bring together and collate the latest views and news pertaining to the currency markets - subsequent decision making is done so independently of this website. All quoted exchange rates are indicative. We cannot guarantee 100% accuracy owing to the highly volatile and liquid nature of this market.